Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
When I posted my Tri-Valley market update a month ago, I discussed how the increase in interest rates could possibly cool the market down. It seems to have done the opposite.
Sellers are still receiving multiple offers, which most are well over the asking price. The big change is in the terms and price. To be competitive, buyers are releasing all three contingencies upfront, which are the investigation, appraisal, and loan. Regarding purchase price, it went from 10 to 20% over asking to 30 to 40% over asking.
Wow, this is new territory.
Why such an increase? Well, let’s just look at the facts.
Number One: Low Inventory
We are still at record low inventory.
Number Two: Record Low Interest Rates
Yes, interest rates did go up last month but, historically, if you subtract the middle of 2020, we’re still at historic lows.
Number Three: The Pandemic
Many tech companies still allow employees to work from home. In Northern California, the two main tech areas are Silicon Valley and San Francisco. These areas are typically more expensive than the Tri-Valley area. Also, San Francisco is a densely populated area that may be less appealing to buyers who prefer the suburbs.
Number Four: No New Housing
Yes, new construction has been up for the last couple of years but if you go back to 2014 we are way behind, so it may make sense to these buyers to purchase in the Tri-Valley area, even if they’re paying 30 to 40% over asking. How can a buyer successfully compete in this aggressive seller’s market? Well, it starts with research and then you develop your strategy.
By the way, this aggressive seller’s market isn’t just in the Tri-Valley, it’s nationally as well.
A nationwide real estate franchise firm recently claimed that nearly 60% of their transactions involved multiple offers.
Unlike the bidding wars of the past, these aren’t all deep-pocketed investors who are submitting the winning bids. A buyers’ real estate agent in Virginia related a story about her client who was paying cash for a home.
Since cash offers typically win, imagine that buyer’s surprise when the home went to another buyer who offered almost twice the listing price for the home. In all, the home received 129 offers, according to a story at prnewswire.com.
Although being able to come in over the price others are offering is one way to win a bidding war (and the technique we offer up first, below), keep in mind that there is more to a real estate purchase agreement than price.
This spring’s hot sellers’ market requires an arsenal of techniques and strategies if you’re going to win a bidding war on the home you’ve fallen in love with.
The best way to enter a housing market that’s experiencing multiple offers is to do your research and develop a clear strategy to purchase your home.
When a buyer chooses a home to put an offer on, the buyer’s agent needs to perform their due diligence. This way, they can best advise their client on the price or price range the buyer’s purchase contract will need to be in in order to be competitive with the other offers. They will also need to advise on the terms of the contract.
1-What are terms?
The main terms in a buyer’s purchase agreement are the time or length of the contract.
In other words, how many days does the buyer need to close or purchase the home?
2- How is the buyer going to purchase the home?
Will the buyer use cash or finance their offer?
3- Buyer contingency periods.
Residential purchase agreements have 3 main buyer contingencies.
The three main buyer contingencies are investigation, appraisal, and loan.
For the California contract, investigation and appraisal are 17 days and the loan is 21 days so the buyer’s agent needs to discuss with their client a strategy on how they can structure their offer so it’s competitive.
How does a buyer’s agent get this information?
It starts with studying the comps. By reviewing the comps, an experienced agent should be able to understand how the market is performing. Real estate comps have three components, active, pending, and sold.
Only the sold comps reflect the date the property closed, the actual purchase price, and how was the property purchased, was it cash or financed?
Pending comps show how long the property is on the market before going pending and, providing the listing agent notes this, how many offers were received?
Active comps reflect two things. One, it’s available still and, two, how many days it’s on the market. This information is helpful. However, in this aggressive seller’s market, the buyer’s agent has to go deeper, they have to reach out to the listing agent personally to have a discussion.
I always recommend calling the listing agent instead of sending a text or email. Here are some typical questions the buyer agent should ask.
Questions to ask the listing agent:
- 1- Have you received any offers?
- 2- If so, are they cash or financed?
- 3- What is the seller looking for, is it rent back, an all-cash offer?
- 4-Do they want the property to be accepted in its as-is condition?
It’s been my experience that with just a phone call to the listing agent and ask them, “Hey, how many offers have you had or received any,” they’ll just volunteer all this information upfront.
In this conversation, the listing agent may elaborate on issues the home has such as a problem with the roof, drainage issues, or a crack in the pool. They may also have a seller’s disclosure package that includes the seller’s TDS and SBQ and any inspection reports. The listing agent will be advising the buyer’s agent to make sure they review this information with their buyer before they write their offer.
Providing the buyer’s agent was able to get some helpful information from the listing agent, they will then structure their offer accordingly so there’ll be aggressive and hopefully win the bid on the house. In this aggressive seller’s market the seller may choose to counter just the top three or four offers for the best price and terms. If this happens, hopefully you’re included and this way you still have a chance of getting the home.
Let’s say you’re preparing a financed offer. You should have a discussion with your real estate agent and loan agent on how much you’re willing to pay and how will you address the investigation, appraisal, and loan contingency. Are you willing to shorten the timelines or release some of them or all of them up front?
If you do choose to release all your contingencies up front, you need to understand your earnest money deposit, which is usually 3% of the purchase price, is now unsecured. This means if you choose to cancel the contract your deposit is forfeited to the seller. The contract is a legal document.
If you need clarity on this, it’s always best to consult with an attorney first. Think of it this way, you’re going to pay thousands for a home, you might want to spend a few hundred on legal advice so you can be best prepared.
One last point on buyer agent due diligence. When speaking to the listing agent, you’re going to find that not every property is going to get 15 offers. For that reason, the listing agent may be forthright on what it will take to just get that offer accepted.
I hope this video helps you better understand this aggressive seller’s market we’re going through and with understanding what you can do by reaching out to the listing agent and developing a strategy will help you get your offer accepted.
I hope you enjoyed this article. Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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